Market Insights: Thursday, September 26th, 2024

Market Overview
The S&P 500 clinched a fresh record today, buoyed by strong economic data and positive earnings from the chip sector. The final update on Q2 GDP growth surpassed expectations, helping to ease concerns about a potential recession. Weekly jobless claims also unexpectedly fell to their lowest level in four months, providing further support to the bullish sentiment. China's continued efforts to revive its economy, including fresh fiscal measures, gave global markets a boost. With eyes now turning to tomorrow's key PCE inflation report, which is the Federal Reserve's preferred gauge, the market is poised for another round of potential volatility.

SPY Performance
SPY opened at $574.38, hitting a high of $574.71 during the session. After some choppy trading, it reached a low of $569.90 before closing at $572.30, up 0.40%. Trading volume was lighter than usual, with 40.81 million shares traded. Despite early gains, SPY faced resistance at $575, consolidating near support levels for most of the session as investors awaited tomorrow's inflation report.

Major Indices Performance
The broader market saw all rose today. The Dow gained 0.62%, while the Nasdaq rose by 0.58%. The Russell 2000 climbed by 0.53%, reflecting the strength in small caps as investors look for opportunities in underperforming sectors.

Notable Stock Movements
The "Magnificent Seven" stocks saw mixed results. Apple (AAPL), Google (GOOGL), and NVIDIA (NVDA) all posted gains, with NVDA jumping 2.18%, while Amazon (AMZN), Netflix (NFLX), and others faced moderate losses. Meanwhile, chip stocks like Micron (MU) surged following upbeat earnings, contributing to the overall market lift.

Commodity and Cryptocurrency Updates
Crude oil prices fell by 3.19% amid concerns over global demand, while Gold managed a 0.40% gain, continuing its upward momentum. Bitcoin rose 2.14%, closing just under $65K as cryptocurrency markets experienced a bounce.

Treasury Yield Information
The 10-year Treasury yield climbed by 0.40%, closing at 3.80%, as the bond market reacted to the strong economic data. This continues to reflect expectations of future rate hikes and economic resilience.

Final Thoughts on Market Positions
With the market continuing to grind higher, tomorrow's PCE inflation data could be the next significant catalyst. Bulls remain in control, and we maintain our bullish stance on Gold, Silver, and Bitcoin above $62K. SPY may test the $575 level again tomorrow, but a failure to break through could see a consolidation back to $570. Defensive positioning remains prudent as market volatility looms ahead of key economic releases.

Recap of Previous Forecast
In yesterday’s newsletter, we anticipated that SPY would continue to trade within a tight range, with $575 acting as strong resistance. We also predicted that any dips toward $570 would provide buying opportunities. We stated the first resistance level to the upside above $570 was $573 which is where the market opened and stopped in the afternoon session and into the close.

Market Performance vs. Forecast
Today's session largely confirmed our forecast, with SPY struggling to break through $575 but remaining within the anticipated range. Intraday dips toward $570 provided opportunities for buyers with a perfect failed breakdown long at 1:18 pm ET, while a short after the open from the $573 level to $570 also worked to perfection. SPY’s closing level of $572.30 was again major resistance which stopped the market from moving higher as forecast. Once again, the levels and directional bias forecast worked as indicated.

Final Thoughts
The Bulls still control the market, but resistance at $575 remains a significant barrier to higher prices. Today’s consolidation confirms the importance of watching key levels. SPY respected the $570 support level but struggled to push through $575. Tomorrow’s PCE data will be crucial for determining the next move. We recommend maintaining a cautious, yet bullish outlook, especially as volatility is expected to increase. Be sure to trade what you see after PCE.

Premarket Analysis Summary
Summary of Key Levels Identified
In today’s premarket analysis at 8:39 am ET, we identified $575 as a critical resistance level, with support at $570.50. The dividing line was set at $574.70, and we favored long positions above this level. Below $574.70, we anticipated a move toward $572.55, with a potential to reach $570.50 in case of increased selling pressure.

Validation of the Analysis
Today's price action validated our premarket analysis, as SPY tested resistance at $575 but failed to break through, pulling back to $572.55 by midday. This provided a perfect short opportunity from the open, confirming the post market forecast. Readers understand when the post and premarket reports concur, move all in with confidence as the probability of success increase. To be sure this short from the open delivered large gains on an otherwise choppy day. And long from $570.50, also aligned with the post market report so all in once again on the long side for another massive winner. Both reports and the premarket’s updated levels, provided profitable opportunities for traders who followed the guidance,  reinforcing the accuracy of our analysis.

Looking Ahead: Economic News Releases
Summary of Upcoming Economic Data
Tomorrow’s economic calendar features the highly anticipated PCE inflation report, followed by consumer sentiment data. These releases will likely dictate the market's direction heading into next week.

Anticipated Market Impact
The PCE report is expected to be a key driver of market action tomorrow. Any surprises in the inflation data could lead to increased volatility, particularly as the Federal Reserve looks for signs of persistent inflationary pressures.

Guidance for Traders
As we approach tomorrow, traders should prepare for potential sharp movements following the release of the PCE data. We continue to recommend caution and suggest closely monitoring key levels, especially around $570 and $575. The Bulls are still behind the wheel, driving the action so on a favorable PCE number, look for them to attempt to push through major overhead resistance at $575 with the next stop at $580.

Market Sentiment and Key Levels
The Bulls remain in control, with SPY hovering just below the key resistance level of $575. Support remains strong at $570. If SPY can break through $575 tomorrow, we could see a run toward $577.50 initially with a ceiling likely at $580. However, if it fails, a pullback to $570 is highly likely.

Expected Price Action
We expect SPY to trade within the range of $570.50 to $575.50 tomorrow. A break above $575 could trigger a push to $577.50, while a failure to hold above $570.50 could lead to consolidation, perhaps opening the door to lower prices. $566 is a level which must hold for the Bears to keep control in the short term and a break of $570 will likely trade to $566. We see this as a low probability for Friday absent PCE information. More likely SPY attempts to break above $575 to create a new all-time high.

Trading Strategy
For tomorrow, we favor buying any dips near $570, with stops placed just below support. Short trades from $575 are also recommended, as resistance remains strong at that level. In a choppy market we favor failed breakout/breakdown trade patterns so keep a look out for these patterns to emerge. Maintain disciplined risk management, and be prepared for increased volatility following the PCE report and trade what you see.

Model’s Projected Range
Our model projects a range of $567.75 to $576.50 for tomorrow, with a likelihood of consolidation around $570. This range has contracted a bit from today so while we still expect trending price action tomorrow, it’s possible with the range shrinking and with PCE premarket, by the time the market opens, prices trade more sideways than trending. Certainly watch for potential volatility following the economic data releases and trade what you see.

Market State Indicator (MSI) Forecast
Current Market State Overview: The MSI is currently in a Ranging Market State with price closing just above mid-range. This is a transitionary state and as such price could move either way overnight. With Bulls in control, like last night, the likelihood is price will move out of this range to a Bullish Trending Market State in anticipation of a positive PCE report. The current range is wide implying market participant uncertainty, with MSI support at $570.48 and resistance at $573.24. 

Key Levels and Market Movements: Like yesterday, at the open the trend appeared strong with the MSI in a Bullish Trending Market State and extended targets printing above price. But again like yesterday, extended targets ceased printing just prior to the open and with price at MSI overhead resistance, a mean reversion short was in order for a great trade to the lows of the day. The MSI shifted to Ranging Market State which users know lowers the odds to 50% of a move to support from resistance. And price did bounce a bit mid-range which may have gotten some users to exit their shorts @ $572. Still a great trade and certainly an acceptable exit. MSI did finally rescale very briefly to a Bearish Trending Market state without any extended targets below which once again, opened the door to a long trade, especially with a perfect failed breakdown pattern at our major support level. A perfect long was initiated to back to mid-range of the MSI once it rescaled back to a Ranging Market State and stayed in this state into the close keeping us from over trading.  

Trading Strategy Based on MSI: With the MSI in a Ranging Market State and with Bulls in control of the market, we favor long trades from support with the market moving back to $573.50 and beyond with mean reversion shorts from overhead resistance above this level as long as there are no MSI extended targets printing above price. The $570 level continues to provide support which is where we would seek longs back to overhead resistance. The MSI once again today provided valuable updates to our trading levels in real time and will do so tomorrow as well after the release of PCE data into the market. We continue to advise looking for trades from MSI levels which align with our major levels as we continue to favor long over short trades.

Dealer Positioning Analysis
Summary of Current Dealer Positioning: Dealers are selling $574 to $580 and higher strike Calls while buying $573 Calls. This implies Dealers want to be positioned for any market rally to as high as $580. That said, Dealers appear positioned for price to top out at $575. To the downside, Dealers are buying $572 to $565 and lower strike Puts in a 5:1 ratio to the Calls they are selling/buying, implying a Bearish view of the market for Friday. Dealers have changed their positioning from Bullish to Bearish heading into tomorrow.  

Looking Ahead to Next Friday: Dealers are selling $578 to $585 and higher strike Calls while also buying $573 to $577 Calls. This implies Dealers again want to be positioned to participate in higher prices in any rally that may develop next week. $580 is major resistance heading into next week. To the downside Dealers are buying $571 to $558 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying, implying a neutral view of the market for next week. This view has not changed materially from today. Dealers continue to hold plenty of downside protection below $560 should the market fall for any reason but are otherwise positioned for rising prices next week.  

Recommendation for Traders
As always, we recommend reviewing tomorrow’s premarket analysis before the opening bell to help guide your trading strategy. Our goal is to provide you with actionable insights that you can apply to your trading strategies each day. Good luck, and good trading!